In the Middle East, many start-ups struggle to secure funding, often leading to a blame game of pointing fingers at the industry, market conditions and even investors. But is it that simple? This article aims to uncover the true challenges and responsibilities of securing funding for start-ups in the region, and to provide a solution-focused perspective. 

There are No Excuses. 

The estimated total investment throughout 2022 stood at $3.6 billion, up 13 percent compared to 2021 and spread across 628 deals in the broader Middle East region. Egypt, followed by UAE and Saudi Arabia being respectively the biggest beneficiaries with the majority of investments going to sectors such as e-commerce, fintech, and healthcare. Most recently we’ve seen the emergence of new sectors driven by several domestic and regional agendas such as agritech, edutech, logistics and more recently, AI. 

The growth of international investors is testament to the maturing eco-system in the region, attracting the attention of a larger number of global VCs representing around 31 percent of MENA-based transactions of the region in H1, 2021, a 4 percent increase on 2020. Granted, we have also seen investor appetites shift towards bigger opportunities and more mature series funding focusing more on geographic expansion and the development of economies of scale and scale ups in promising start-ups. 

Beyond Blame: The factors affecting start-up funding in the Middle East and how to navigate them. 

It’s easy to blame the industry for lack of funding, but there are many factors that contribute to a start-up’s ability to secure funding. Start-ups should focus on developing a strong business model, creating a clear value proposition, and crafting a compelling pitch to attract investors. They should also aim to build a solid team with a mix of skills, experiences, and expertise.  

Remember that securing funding is a process and it takes time. Start-ups should be open to feedback and willing to pivot or change their strategy as needed.  

Alternative forms of financing, such as bootstrapping, crowdfunding, or debt financing, should also be considered. Flexibility is key for start-ups in today’s ever-changing ecosystem and having a clear and compelling value proposition sets them apart from competitors. 

Where is the Money: The Funding Sources for Startups in the Middle East  

Start-ups in the Middle East are getting funding from a variety of sources, and the distribution of funding sources may vary depending on the country and sector. However, some of the main sources of funding remain to be VCs representing the majority, Angel investors as well as Incubators & Accelerators. Recently emerged are the Family offices and sovereign wealth funds along with government funds; these are also providing mentorship and resources alongside funding. Finally, crowdfunding platforms like Eureeca and Aflamnah are becoming more popular in the region. 

Where are the Obstacles: Obstacles facing Startups in the Middle East other than the Start-Ups themselves 

There are several obstacles that startups in the Middle East face when trying to get funding. Many startups in the Middle East have struggled to secure funding because they don’t have access to large pools of capital. This can make it difficult for startups to grow and scale their businesses. This seems to be changing rapidly as we speak. Some of the main obstacles include. 

  1. Lack of a developed startup ecosystem: In comparison to other regions like Silicon Valley, the Middle East’s startup ecosystem is still relatively young although developing fast.  
  2. Limited experience and expertise: Many startups in the Middle East are founded by entrepreneurs who have limited experience in starting and growing a business. 
  3. Limited understanding of the local market: Some investors may not have a good understanding of the local market and the specific needs of customers in the Middle East.  
  4. Legal and regulatory barriers: Some countries in the Middle East have restrictive regulations and laws that can make it more difficult for startups to operate and secure funding. As well as restricting cross border scale ups between countries. 
  5. Lack of exit opportunities: The lack of exit opportunities, mainly through IPOs, make it difficult for investors to exit their investments, which can make it harder for startups to secure funding from them in the first place. The past years have some tremendous changes in exit strategies in the region.

It’s important to note that these obstacles may vary depending on the country and the specific sector. Additionally, the start-up ecosystem in the Middle East is continuously evolving and the obstacles are changing rapidly over time. What can Start-Ups do: Meanwhile… 

There are several things that start-ups in the Middle East can do to attract funding: 

  1. Develop a strong business model and plan: Start-ups need to have a clear and compelling business model that demonstrates their potential for growth and profitability.  
  2. Build a strong team: Start-ups need to have a team with a mix of skills, experiences, and expertise. Investors are more likely to fund start-ups with a team that has a track record of success. 
  3. Have a clear value proposition: Start-ups need to have a clear value proposition that sets them apart from their competitors. This will help them stand out to investors and demonstrate their potential for success. 
  4. Network and build relationships: Start-ups should network with other entrepreneurs and investors in the region. Building relationships with potential investors can help with funding. 
  5. Be prepared to pitch: Start-ups should be prepared to pitch their business to investors. This should include a clear and concise presentation of their business model, financial projections, and a summary of their team and their experience. 
  6. Have a clear growth and scaling strategy: Investors are attracted to start-ups that have a clear strategy for growth and scaling their business. 
  7. Understand the local market and culture: Start-ups should have a good understanding of the local market and the specific needs of customers in the Middle East. This will help them to better target their products and services to the local market and attract funding from investors who are familiar with the local market. 
  8. Be open to different funding options: Start-ups should be open to different types of funding, such as equity, debt, or crowdfunding. Each type of funding has its own advantages and disadvantages and start-ups should evaluate which is the best fit for them. 

The Investor’s Checklist: What Startups Need to Show to Secure Funding

Venture capitalists (VCs) typically expect startups to have a solid business plan and a clear value proposition before they consider funding them. Here are some of the key things that venture capitalists typically expect from startups before investing in them. The below list is an excellent starting point for pre-pitching: 

  1. A clear and compelling vision: VCs want to invest in startups that have a clear vision and a well-defined mission.  
  2. A strong business model: VCs want to see that startups have a business model that is sustainable and profitable.  
  3. A solid team: VCs want to see that startups have a strong, experienced, and dedicated team in place, that could include external mentors and support network.  
  4. A clear market opportunity: VCs want to see that startups have identified a clear market opportunity that they can capitalize on.  
  5. Traction: VCs want to see that startups have traction, meaning they have a product that is selling, generating revenue, and has a growing customer base. 
  6. Scalability: VCs want to invest in startups that can grow and scale quickly.  
  7. A clear exit strategy: VCs want to see that startups have a clear exit strategy in place. 

It’s worth noting that the above are general expectations, and each venture capitalist may have different priorities and expectations. Understanding VCs appetite and expectations is important when pitching to them. 

Investing in Growth, Not Dilution: How Venture Capitalists Help Startups Protect Their Equity 

Many startups avoid early funding rounds due to concerns over dilution of equity. However, venture capitalists are not interested in diluting ownership, they want to invest and grow the business with the founders. Trusting in the VC and owners partnership is key to success. 

It’s important to keep in mind that funding partners are not simply sources of cash, they should bring value to the table that goes beyond money. Entrepreneurs should seek out investors who can bring industry expertise, strategic connections, and mentorship to the table.